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» Luxembourg Holding
Company Overview
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Luxembourg Holding Company Overview
1. THE SOPARFI
Definition
The SOPARFI (Société de Participation Financière)
is an ordinary company which beside its holding activity can carry out
or take part in any other activity such as financing, real estate, …
It falls within the scope of general tax law and may benefit from the
double taxation treaties concluded by Luxembourg and the European tax
directives.
Legal Form
The SOPARFI can be constituted either as a “société
anonyme” (public limited company- SA), a “société
à responsabilité limitée” (private limited
company- SARL) or a “société en commandite par action”
(limited partnership by shares).
Formation
The minimum share capital for incorporation of a Luxembourg company
is €12.500 for a “société a responsabilité
limitée”, which must be fully paid up, and €31.000
for a “société anonyme” of which a minimum
of 25% must be paid up.
A company incorporated as a “société anonyme”
may have bearer shares. However, shares are nominative until the entire
capital has been paid-up.
Taxation
A SOPARFI is a company fully subject to tax at a normal rate of 29,63%
and is eligible to benefit from the double tax treaties concluded between
Luxembourg and third countries and from EU directives.
A 1% capital duty is due to the tax authorities on any contributions
made to the SOPARFI. However, this tax will not be applied if:
- capital increased by incorporation of reserves ;
- transformations of a SOPARFI into a Holding 1929 or vice versa ;
- certain transactions as part of a group reorganisation ;
- if transferred assets have already been submitted to capital duty
in a member state.
Business tax is not levied on a Luxembourg company. However, it is
subject to a net worth tax of 0,5%.
Income
The taxable income of a SOPARFI is based on the annual financial statements
prepared in accordance with generally accepted accounting principles.
Expenses incurred exclusively for the purposes of the business are deductible
while expenses incurred with exempt income are not deductible.
Income in form of dividends, capital gains on disposal of shares and
winding-up exceedents can be exonerated under certain conditions.
» Dividends Exemption
To be able to benefit from dividends exemption, the following conditions
must apply:
The distributing company must be:
- a fully taxable resident limited company ;
- a non-resident limited company that is fully liable to tax according
to Luxembourg corporate tax ;
- a company resident in another Member State of the EU and covered
by art. 2 of the EU Council
Directive of 23 July 1990.
The receiving company must be:
- a limited company that is resident in Luxembourg and fully taxable
;
- a Luxembourg domestic permanent establishment of a company resident
in another Member State of the EU and covered by art. 2 of the EU
Council Directive of 23 July 1990 ;
- a Luxembourg domestic permanent establishment of a limited company
that is resident in a state with which Luxembourg has concluded a
double taxation treaty.
The holder of the participation must hold or undertake to hold the
shares for an uninterrupted period of at least 12 months during which
the participation must not fall under a 10% limit and or the acquisition
price being under €1,2 million.
» Capital Gains Exemption
The conditions for a SOPARFI to benefit from the exemption are similar
to those of the exemption of dividends. The only difference is the
amount of acquisition price that is €6 million.
» Interest and Royalties
See income above.
Some Advantages of the SOPARFI
Besides the common advantages of a holding company, the SOPARFI
may also enjoy from the following:
» Exemption on Winding-Up
In case of a winding-up of a SOPARFI, dividend payments are transmitted
free of withholding tax to the beneficiaries.
» Exemption from Withholding
Tax on Payment of Dividends
Dividends paid by the SOPARFI are exempt from withholding tax if
the distributing company is a fully taxable limited company under
Luxembourg law and the receiving company is:
- a fully taxable resident limited company ;
- a resident in a Member State of the EU and falls under art. 2 of
the EU Council Directive of 23 July 1990 ;
- a domestic permanent establishment of a limited company resident
in another Member State of the
EU and falling under the article 2 of the aforementioned Directive
;
- a domestic permanent establishment of a limited company resident
in a state with which Luxembourg has agreed a double taxation treaty.
At the date on which the income is made available the beneficiary
must hold or undertake to hold directly for an uninterrupted period
of at least 12 months a participation of at least 10% in the share
capital of the distributing company or an acquisition price of at
least €1,2 million.
» Exemption from Withholding
Tax on Payment of Interest
According to the law, no withholding tax shall be imposed on payment
of interest by a Luxembourg company.
» Exemption from Withholding
Tax on Payment of Royalties
According to the law of 9 July 2004, no withholding tax shall be
imposed on payment of royalties by a Luxembourg company, taking effect
from the year of 2004.
» Exemption from Net Worth Tax
The basis to calculate the net worth tax applicable on fully taxable
companies is their net operating assets reflected by the unit value
of the company. However, participations can be excluded from the calculation
of the unit value of the company if:
The SOPARFI is:
- a fully taxable resident limited company ;
- a company that is resident in another Member State of the EU and
covered by the art. 2 of the EU
Council Directive of 23 July 1990 ;
- a domestic permanent establishment of a company that is resident
in a state with which Luxembourg has agreed a double taxation treaty.
The subsidiary is:
- a fully taxable resident limited company ;
- a non-resident limited company fully taxable to a tax corresponding
to the Luxembourg corporation tax (15% minimum) ;
- a company that is resident in another Member State of the EU and
covered by the art. 2 of the EU
Council Directive of 23 July 1990.
The direct participation must be at least 10% of the share capital
or the acquisition price to be at least €1,2 million at the end
of the operational year taken into consideration for the calculation
of the unit value of the SOPARFI.
2. THE SICAR
Definition
The SICAR (Société d’Investissement à Capital
Risque) is a company which is ruled by the Law of 15th June 2004. It
falls in the scope of general law and benefits from the EU Directives
or double taxation treaties concluded by Luxembourg.
Its activities are restricted to investment in venture capital and it
is restricted to “well informed” investors.
Venture capital is defined by law as any direct or indirect injection
of capital to entities in view of their launch, development, listing,
…
The SICAR may benefit from the double taxation treaties concluded by
Luxembourg.
Legal Form
The SICAR can be constituted either as a “société
anonyme” (public limited company- SA), a “société
à responsabilité limitée” (private limited
company- SARL), a “société en commandite par action”
(limited partnership by shares), a “société en commandite
simple” (limited partnership) or a “société
coopérative sous forme de société anonyme”
(cooperative company).
Formation
The minimum subscribed share capital of a SICAR must reach €1
million within 12 months after the authorization by the CSSF. The capital
must be fully subscribed but each share must only be paid up for at
least 5% (not applicable if incorporated as a limited partnership).
Contributions may be in cash or in kind. No legal reserve has to be
maintained. The capital may be variable under certain conditions.
The Supervisory Authority
The SICAR must be authorised by the “Commission de Surveillance
du Secteur Financier” (CSSF), the Luxembourg supervisory authority
for the financial sector. The custodian, as well as the directors or
the managers must submit to a CSSF clearance.
The Custodian
The assets of the SICAR have to be safeguarded by an appointed custodian.
It should be a regulated financial institution established in Luxembourg.
His role will be to act independently and exclusively in the interest
of the investors.
Nevertheless, the custodian does not verify the conformity of the investment
decisions to the investment policy defined in the prospectus of the
SICAR.
The Investors
The SICAR investors can be professional investors (i.e. investment
funds, professional investors, pension funds, other commercial companies)
or all “informed” investors.
An investor will be classified as “informed” if:
- he declares that he complied with the expertise and knowledge expected
from a professional investor; and
- he invests a minimum €125.000 or
- he delivers a written confirmation by a professional from the financial
sector (i.e. credit institutions, investment companies) that he has
the expertise and knowledge to apprehend investment in vesture capital.
No investment rules are provided by law (i.e. risk spreading or diversification
rules).
Income
The SICAR benefits from a special tax regime.
» Income Exemption
Income from movable assets (sale, contribution or liquidation) is
exempt from income tax in the SICAR.
» Capital Gains Exemption
Non-resident investors are not subject to Luxembourg income tax on
capital gains on disposal of shares in the SICAR.
Some Advantages of the SICAR
Besides the common advantages of a holding company, the SICAR may also
enjoy from the following:
» Exemption from Withholding
Tax on Payment of Dividends
Dividends paid by the SICAR are exempt from withholding tax, regardless
the place of residence of the shareholder.
» Exemption from Withholding Tax on Payment of Interest and
Royalties
Interest and royalties paid to non-residents are not subject top
withholding tax.
» Other Advantages
- no wealth tax is applied;
- the SICAR is not obliged to create any legal reserve;
- the SICAR is subject to a fixed capital duty of €1.250 maximum.
Luxembourg Key Elements
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2If conditions
are met.
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